Budgeting Topics

INCENTIVES & REBATES

Many budgets are based a lot on where it can be shot due to incentives and rebates. I constantly hear producers ask, "Well, we'd like to do this for about $XX million, so where can we maximize our spend?" With that question asked, it's now your job to balance the many issues at hand as well as the creative needs of the film with where to shoot it.

Rebates & Incentives can be pretty complex. Knowing how they work will give you an advantage when figuring out your production plan. This section lets you know where to go to get more info.

THIS INFORMATION CHANGES CONSTANTLY

There are some really great resources being done by people who get paid to do nothing but keep on top of it all.

All rebates are not created equal. Aside from the layers of complexity, you'll need to understand for wherever you shoot, equally important is how you actually get your money returned. Below I outline the two types and issues to be aware of.

CASH REBATE

OK, so it's not actually 'cash' - but they will cut you a check. Many states offering this type of rebate will work to return your money within 30 to 90 days. Keep this time span in mind when creating your Cash Flow. If the rebate will be rendered after potentially months of time, you'll need to allow that money time to get back to you. Also, as with ALL rebates - this one is most particularly important to understand that often the states will count the start of the waiting period from the day your application and back-up materials are complete. This means that your accounting department could turn in everything, then three weeks later the state asks for something you forgot. So, now you need to start that clock again.

TAX CREDIT

Tax credits will benefit either the production company, an investor (or investing company) or a third party who buys the Tax Credit (called Vouchers). Please note (and this is the major rub here). Both types of Tax Credits often take months, if not years, to monetize. This means that not only is your cash flow affected, you need to attribute more money in the initial budget to pay interest on the initial loan until the resulting tax rebate is received. To put plainly, if you do a film for $10M and expect a rebate of (let's say) $1M in tax credits, you might want to cash flow $11M on the front end to pay for everything - or else, you need to plan your post production accordingly and perhaps take a few months down time.

Refundable

A Refundable Tax Credit is where the production entity files a tax return in the state it produced in (and therefore attempting to get a return of funds) with the end result being a reduction of taxes owed. Should the production entity not owe any taxes, the rebate is rendered as a tax refund. Should the company owe, the amount owed is reduced from the potential tax rebate first.

Transferable

A Transferable Tax Credit, like the Refundable type, is a refund based on a tax return. However, the difference here is that you may sell these "Tax Vouchers" to a third party. The thing to keep in mind here is that if you expect a Tax Credit refund of (let's say) $1M - you will not be able to find anyone to buy those vouchers for $1M. Most vouchers will sell for anywhere between 45 to 80 cents on the dollar. This means your $1M rebate could be worth only $650,000. Ensure you take this into account when doing your budget and cash flow.

REBATE vs. INCENTIVE

It's worth noting that 'incentives' often gets confused with 'rebates'. Yes, a rebate of some sort is an incentive to shoot somewhere. However, keep this distinction in mind as you review the following list of some of the most common incentives.

Tax-free accommodations, after a stay of 30 days or more

Free locations

No permitting fees

Co-Financing

As you can see, by definition of the word, these items are incentives to go somewhere and shoot your film.

CONSIDERATIONS

When working up your production plan and doing your budgets, rebates and incentives are certainly something you'll need to keep in mind. In doing so, as you read-up on your targeted shooting location, keep an eye out for these topics.

Crew Residency

Rebates on crew wage will be based on where they live. This means that you need to plan carefully where your crew is coming from. Also, if the city borders another state, be sure to keep tabs on where your crew reside. Getting residency often takes 6 to 12 months.

Production Eligibility

You will need to be astute when creating your production company and/or how you file certain paperwork. For example, does the state you are looking to shoot in accept rebate requests from out-of-state entities?

Pass-Throughs

A 'pass-through' is a local company or entity which you rest items from outside the state through, and then get a bill from that local company. In most states, this is not an accepted transaction. Others allow it, but with stipulations - such as considering if the item was available in-state, to begin with.

Credit

Some states require screen credit for their help. Ensure you comply, or else they will knock on your door the weekend after your film opens. Bank on it.

Your Spend (Both In-State and Out-of-State)

Keep an eye out for information on minimum spend and maximum rebates. Some states will only consider you if you spend more than a certain amount, and some will only be able to refund up to a certain amount - regardless of your math showing more refund possible.

The Application

No Rebate or Incentive plan is a lickety-split ordeal. Each is a thick pack of forms and some lengthy requirements. Be sure to actually read it. All of it. You also need to keep in mind how far in advance they need the completed application to process and (hopefully) accept it.

Fund Stability

You plan now to shoot in whatever state - but is the money there? Will it be in 6 months when you request it? Keep in touch with the local film commission as they will likely know these answers quickly.